First-Time Adoption of International Financial Reporting Standards: IFRS 1

JOIN KHALID AZIZ

JOIN KHALID AZIZ FRESH CLASSES OF ICMAP STAGE 1,2,3,4 ICAP MODULE B & D PIPFA 0322-3385752 KARACHI, PAKISTAN

JOIN KHALID AZIZ ECONOMICS OF ICMAP, ICAP, MA-ECONOMICS, B.COM. FINANCIAL ACCOUNTING OF ICMAP STAGE 1,3,4 ICAP MODULE B, B.COM, BBA, MBA & PIPFA. COST ACCOUNTING OF ICMAP STAGE 2,3 ICAP MODULE D, BBA, MBA & PIPFA. CONTACT: 0322-3385752 R-1173,ALNOOR SOCIETY, BLOCK 19,F.B.AREA, KARACHI, PAKISTAN.

First-Time Adoption of International Financial Reporting Standards Related standards IFRS 1 Current GAAP comparisons Looking ahead End-of-chapter practice

IFRS 1 – Overview Objective and scope Recognition and measurement Presentation and disclosure

IFRS 1 – Objective and Scope This standard is meant to provide relief from the onerous task of conversion and provides guidance on how to transition over to IFRSs Application An entity would apply this the first time it issues statements with an explicit and unreserved statement that it is in compliance with IFRSs In general, the standard requires retrospective application This will allow users to have greater comparability Two Warnings: 1. Cost benefit -Difficult and time consuming to go back and collect the information needed to apply IFRSs -Information may never have been captured by the entity’s accounting information systems 2. No hindsight -Bias might be introduced when applying the standards retrospectively -Only information that was available at the time may be used for estimates

IFRS 1 – Objective and Scope The overall objective of the IFRS: • Transparency • Suitable starting point • Costs do not exceed the benefits First IFRS Statements Two components: 1. Full adoption of IFRS 2. Explicit and unreserved statement of compliance with IFRSs An entity’s financial statements are the first IFRS statements if • Most recent financial statements were presented o under national GAAP, o in conformity with IFRSs but with no explicit statement to that effect, o under national GAAP with partial application of IFRSs, or o under national GAAP with a reconciliation of some amounts to IFRSs; • Entity has prepared IFRS statements for internal use only; • Entity has prepared an IFRS reporting package for consolidation purposes only; or • Entity did not prepare financial statement at all previously

IFRS 1 – Recognition and Measurement Opening IFRS Statement of Financial Position Date of transition Beginning of the first period for which comparative statements are presented Accounting Policies First reporting period Period in which the entity first presents its IFRS statements In Canada, this would be 2011 (with the balance sheet date December 31, 2011 for entities with a calendar year end) The opening statement of financial position will • Recognize all and only assets/liabilities required/allowed under IFRSs • Present all assets/liabilities in accordance with IFRSs • Measure all assets/liabilities in accordance with IFRSs Any adjustments should be recognized through retained earnings at the date of transition

IFRS 1 – Recognition and Measurement Exemptions from other IFRSs 1. Business combinations 2. Fair value or revaluation as deemed cost 3. Employee benefits 4. Cumulative translation differences 5. Compound financial instruments 6. Assets and liabilities of subsidiaries, associates, and joint ventures 7. Designation of previously recognized financial instruments 8. Share-based payment transactions 9. Insurance contracts 10. Decommissioning liabilities included in the cost of property, plant, and equipment 11. Leases 12. Fair value measurement of financial assets or financial liabilities at initial recognition 13. Financial asset or an intangible asset accounted for in accordance with IFRIC 12 14. Borrowing costs Exemptions are meant to provide some relief from the fairly onerous task of transitioning to IFRSs

IFRS 1 – Recognition and Measurement Illustration 37-1 summarizes the exemptions under IFRS 1

IFRS 1 – Recognition and Measurement

IFRS 1 – Recognition and Measurement

IFRS 1 – Recognition and Measurement Exemptions from the retrospective application 1. Derecognition of financial assets and financial liabilities 2. Hedge accounting 3. Estimates 4. Assets classified as held for sale and discontinued operations 5. Some aspects of accounting for non-controlling interests

IFRS 1 – Recognition and Measurement 1. Derecognition of financial assets and financial liabilities Applied prospectively for transactions occurring on or after January 1, 2004 Financial instruments already derecognized prior to that would not be rerecognized Entity is allowed to apply the derecognition provisions retrospectively only if sufficient information is and was available at the time of initial transaction 2. Hedge accounting Hedging relationships (under a previous GAAP) that do not qualify as such under IFRS should not be recognized on transition Entity may not retrospectively designate hedges 3. Estimates Entity may not use hindsight for estimates

IFRS 1 – Recognition and Measurement 4. Assets classified as held for sale and discontinued operations IFRS 5 is to be applied retrospectively Not available to entities with transition dates after January 1, 2005 5. Some aspects of accounting for non-controlling interests Entity applies certain requirements from IAS 27 prospectively from the date of transition If it elects to apply IFRS 3 and IAS 21 retrospectively, it must also apply IAS 27 retrospectively

IFRS 1 – Presentation and Disclosure Comparative information Non-IFRS Comparative Information and Historical Summaries Entities often present summary information of selected data Not required under IFRSs Where the entity provides additional comparatives under previous GAAP, the entity must clearly label this as non-IFRS and provide additional disclosures Explanation of transition to IFRSs General rule Entity should explain how the transition affects its financial statements

IFRS 1 – Presentation and Disclosure Reconciliations • Equity under previous GAAP to equity under IFRSs • Total comprehensive income under previous GAAP to comprehensive income under IFRSs • Must include additional information about impairment booked on transition Designation of financial assets or financial liabilities Designating a financial instrument as FVTPL Additional information is required regarding fair values of those specific instruments

IFRS 1 – Presentation and Disclosure Use of fair value as deemed cost Entity must disclose additional information, including the amount of the adjustment Interim financial reports Entity must present interim information for the period covered by its first IFRS statements IFRS 1 provides detail about the additional requirements relating to interim information

Looking Ahead Derecognition of financial assets and liabilities AcSB Revision of transactions that occurred prior to ‘the date of transition to IFRSs’ Address the transitional issues of countries whose transition date to IFRSs is significantly later than January 1 2004 IASB Noted that January 2004 is the date the derecognition requirements of IAS 39 became effective and is therefore not related to transition dates Agreed and decided not to change paragraph 27 of IFRS 1 Reassessment of accounting under previous GAAP Proposed precluding reassessment of previous GAAP accounting when it adopted the respective IFRS word for word and provided the same transitional provision Decided to proceed with the proposal AcSB was asked to redraft the proposal to clearly identify the scope

Looking Ahead Retrospective restatement of fair values AcSB Recommended a principle prohibiting the retrospective restatement of fair values Unless the information determined or available as at the date IFRSs required the fair value to be determined IASB Agreed and asked the AcSB staff to draft an amendment for future Oil and gas industry issue: Full cost accounting Proposal Allow these entities allocating the existing carrying amount of each cost centre to the oil and gas assets within that cost centre ‘CGU approach’ Decided to proceed with this proposal and asked AcSB to prepare a comprehensive description of the issue

End-of-Chapter Practice